Intermediate Accounting 2 Quiz #3

Intermediate Accounting 2 Quiz #3 Coverage: Chapter 8, Chapter 9 and Chapter 10

Instructor: Ray Patrick S. Guangco, CPA

Name: Claire M. Antido BSA INSTRUCTION: Answer the following problems below. SHOW YOUR SOLUTION. NO SOLUTION, NO POINTS. PROBLEM 1 PV of principal (4M x .7513) PV of payment (600k x 2.4869) DATE Jan. 2018 Dec. 2018 Dec. 2019 Dec. 2020

PAYMENT

P3,005,200 1,492,140 P4,497,340 (A) INTEREST

600,000 600,000 600,000

449,734 (B) 434,707 418,178

PRINCIPAL CARRYING AMOUNT 4,497,340 150,266 4,347,074 (C) 165,293 4,181,781 181,822 ` 4,000,000

D.) 0 E.) Note payable, due 12/31/20 Premium on NP less: Premium amortization 2018 Carrying amount

P4,000,000 497,340 150,266 P4,347,074

PROBLEM 2 FV PV of Principal PV of Payments Discount DATE Jan. 2018 Dec. 2018 Dec. 2019 Dec. 2020

P2,000,000 P1,423,560.50 144,109.88

PAYMENT 60,000 60,000 60,000

INTEREST

1,567,670.38 (A) P 432,329.62 PRINCIPAL

188,120.44 (B) (128,120.44) 203,494.90 (143,494.9) 220,714.29 (160,714.29)

D.) Principal due on Dec. 2018 less: Discount on NP Carrying amount

CARRYING AMOUNT 1,567,670.38 1,695,790.82 (C) 1,839,285.72 2,000,000

P1,200,000 203,494.90 P1,403,494.9

E.) Principal due on Dec. 2019 and 2020 Discount on NP Carrying amount

P800,000 (220,714.29) 60,000 P639,285.71

PROBLEM 3 A.) How much is the cost of the machinery acquired on January 1, 2018? cash price = P994,760 B.) How much is the interest expense for 2018? P994,760 x 10% = P99,476

Intermediate Accounting 2 Quiz #3 Coverage: Chapter 8, Chapter 9 and Chapter 10

Instructor: Ray Patrick S. Guangco, CPA

C.) How much is the carrying amount of the note on December 31, 2018? Notes payable Interest payment Interest expense

P994,760 P400,000 (99,476)

(300,524) P694,236

D.) How much is the current portion of the note on December 31, 2018? Notes payable Discount

P400,000 (69,424) P330,576

E.) How much is the noncurrent portion of the note on December 31, 2018? Notes payable Discount

DATE Jan. 2018 Dec. 2018 Dec. 2019 Dec. 2020

P400,000 (36,366) P363,634

PAYMENT 400,000 400,000 400,000

INTEREST 99,476 69,424 36,366

PRINCIPAL 300,524 330,576 363,660

CARRYING AMOUNT 994,760 694,236 363,660 -

PROBLEM 4 Ordinary gain on Disposal of land: FV of land less: Acquisition cost Holding gain on sale of land

P5,000,000 3,500,000 P1,500,000

Gain on restructuring: 3 – year note Accrued interest Amount owed Settlement amount Gain on restructuring of debt

P6,600,000 5,000,000 P1,600,000

P6,000,000 600,000

Total gain = P1,500,000 + P1,600,000 = P3,100,000 PROBLEM 5 How much is the share premium arising from the debt restructuring considered as “equity swap”? Notes Payable Accrued Interest Payable Total CA of Liability less: FV of shares (50,000 x P70) Gain on extinguishment of debt

P5,000,000 500,000 P5,500,000 3,500,000 P2,000,000

FV of shares less: Par value of shares (50,000 x P50) Share premium

P3,500,000 2,500,000 P1,000,000

Intermediate Accounting 2 Quiz #3 Coverage: Chapter 8, Chapter 9 and Chapter 10

Instructor: Ray Patrick S. Guangco, CPA

PROBLEM 6 A.) What is the gain on extinguishment of debt to be recognized by Koronodal Company on December 31, 2018? PV of principal (4M x .75) PV of annual interest payments (320k x 2.49) Total PV of new liability

P3,000,000 796,800 P3,796,800

Notes payable – old Accrued interest payable Total old liability PV of new liability Gain on extinguishment of debt

P5,000,000 500,000 P5,500,000 3,796,800 P1,703,200

Notes payable – new PV of new liability Discounted on notes payable

P4,000,000 3,796,800 P 203,200

B.) What is the interest expense to be recognized by Koronadal Company for the year 2019? Interest expense for 2019 (10% x 3,796,800) Interest paid (8% x 4,000,000) Amortization of discount

P379,680 320,000 P 59,680

PROBLEM 7 A.) How much is the amount to be capitalized as machinery (leased asset) on December 31, 2018? PV of rentals (120,000 x 3.4018) PV of bargain purchase option (20,000 x 0.6355)

408,216 12,710 420,926

B.) How much is the interest expense in 2019? 420,926 – 120,000 = 300,926 x 12% = 36,111,12 C.) How much is the lease-related liability to be shown as current in the statement of financial position on December 31, 2018? 120,000 – 36,111 = 83,889 D.) How much is the lease-related liability to be shown as noncurrent in the statement of financial position on December 31, 2018? 300,926 – 83,889 = 217,087 PROBLEM 8 PVOA of 1 @ 4 periods PV of 1 @ 4 periods

3.16987 0.68301

PV of rentals (150,000 x 3.16987)

475,481

Intermediate Accounting 2 Quiz #3 Coverage: Chapter 8, Chapter 9 and Chapter 10 Advance payment First annual payment PV of insurance and payment tax (20,000 x 3.16987)

Instructor: Ray Patrick S. Guangco, CPA 150,000

625,481

20,000 63,397

(83397) 542,084 30,000 34,151 606,235 (A)

Indirect cost PV guaranteed value (50,000 x 0.68301) DATE Jan. 2018 Dec. 2018 Dec. 2019

PAYMENT 150,000 150,000

INTEREST

PRINCIPAL

45,623

150,000 104,377

CARRYING AMOUNT 606,235 456,235 351,858

456,235 x 10% = 45,623.5 (B) Carrying amount less: Annual payment Interest expense

456,235 150,000 (45,623)

(104,377) 351,858 (D)

PROBLEM 9 Case No. 1: At the end of the lease, Invest in Yourself expects to exercise the bargain purchase option. Invest in Yourself estimated that the equipment’s fair value will be ₱60,000 at the end of its useful life. How much is the depreciation expense on December 31, 2018? 487,447 (60,000) 427,447/8 years = 53,430.88 or 53,431

Case No. 2: Assume instead that the cost of the machine include ₱50,000 gross guaranteed residual value. How much is the depreciation expense on December 31, 2018? 487,447 (50,000) 437,447/ 4 years = 109,361.75 or 109,362